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Quantitative Principles in Compensation Management > Module 2--Precents and Related Issues > Flashcards

Module 2--Precents and Related Issues Flashcards

1
Q

What is a percent?

A

What is a percent?
* A tool for comparing one value to another
* A ratio, expressed in terms of 100

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2
Q

How is a percent calculated?

A
  • Divide one value into another.
  • Multiply this ratio by 100.
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3
Q

Why do we convert to percents?

A
  • To have a common base from which we can make comparisons – a base of 100
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4
Q

An employee earning 50,000 contributes 4% (.04) of his or her salary to the voluntary savings
plan1. What is the total contribution for the employee?

A

Answer:
50,000 × 4% = 2,000

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5
Q

How do you determine Percent Increase on the following:

Determine the difference between next year’s budget (81,106) and this year’s budget (73,327):
81,106 – 73,327 = 7,779

A

Divide the difference (7,779) by this year’s budget:

7,7779/73,327 = .1061 OR 10.6% increase

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6
Q

Applying Percents and Ratios to Examine Internal and External Equity Compensation practitioners use percents and ratios quite frequently. For example:

■ Individual compa-ratios
■ Department compa-ratios
■ Market indices
■ Examining relationships – examining the relationships between:
* Internal equity (compa-ratios)
* External equity (market indices)
■ Percent difference

A
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7
Q

What is Individual Compa-Ratio?

A

Individual compa-ratio is a tool that helps compare an individual’s actual pay to the midpoint of the
pay grade in which the individual’s position is placed.

Individual Compa-ratio = Salary/ Grade Midpoint

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8
Q

Compa-Ratio for:

Employee salary: 36,000
* Midpoint: 40,000
* What is the individual compa-ratio?

A

.90

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9
Q

Department Compa-ratio

A
  • Average of 90% and 110% is 100%
  • However, total salaries / total midpoints is
    146,000 / 140,000 = 104.3%
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10
Q

What is a Market Index?

A
  • What is a market index?
    Market index is an external measure. It is a ratio that compares internal salaries to the external
    market salary median, the 50th percentile. It is expressed in terms of a particular salary for a job,
    relative to the market salary for that same job.
    “Market” refers to the data from salary surveys. Some companies use the market average, others use
    the median (50th percentile) or other measures of location.
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11
Q

What is the difference between a compa-ratio and a market index?

A

A compa-ratio compares salaries to structure midpoints, yielding an internal index.

A market index compares salaries to market salaries, yielding an external index.

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12
Q

Why is Approach 1 Preferable

A

Why Is Approach 1 Preferable?
■ Rule
* The data over which you have control should be the denominator of the calculation.
■ In the previous example, since you have control over the salary midpoint (whereas you do not have
control over the market), using the salary midpoint is the preferred method.

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13
Q

What is Range Penetration?

A

Alternative approach to Compa-ratio

Pay - Minimum
___________________________

Maximum - Minimum

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14
Q

What is the purpose of a Range Penetration Chart?

A

This graph is a useful tool to help managers allocate their merit increase budget. For example, the manager may want to give a larger than average increase to the employees with higher ratings, but are low in the range. On the other hand, the manager may decide to give no increase or a small increase to employees who are higher in the range but received low ratings.

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15
Q

What is the method for Developling Salary Ranges

A

Developing Salary Ranges
■ Determine the midpoint.
■ Determine the range spread (percent difference between minimum and maximum).
■ Compute the range from the range spread and midpoint. (PAGE 45)

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16
Q

How do you compute the Minimum and Maximum when the midpoint and range are known? (Page 47)

A

Minimum = Midpoint
————————–
1 +(Desired Range Spread)
( ——————————-)
( 2 )

17
Q

How do you compute the Range Maximum?

A

Maximum = Minimum X (1+Desired Range Spread)

For this example, the maximum is determined
as follows:
Maximum = Minimum × (1 + Desired Range Spread)
36,667 × (1 + 0.40)
= 36,667 × 1.40
= 51,333

18
Q

What is the grade Range using the following:

36,667 x (1 + 0.40)
= 36,667 x 1.40
= 51,333

A

Thus the grade range is:
Maximum 51,333
Midpoint 44,000
Minimum 36,667

19
Q

How do you calculate the Range Spread?

A

The range spread is defined as the percent the maximum exceeds the minimum, relative to the minimum.
Expressed in mathematical terms:

Range Spread =
Maximum - Minimum
________________________ x 100
Minimum

20
Q

What is the range spread If you have a 27,000 per year maximum and and 18,000 per year minimum.

A

27, 000 - 18,000 9,000
———————— X100 = ————– X 100 = .5X100 = 50%
18,000 18,000

21
Q

What is reality testing in Developing Salary Ranges

A
22
Q

Q1. You spent 30% of your budget on merit increases three years ago, 35% two years ago, and 40% last year. When was the most money spent on merit increases?

A. Three years ago
B. Two years ago
C. Last year
D. It cannot be determined based upon the information given.

A

D. It cannot be determined based upon the information given.

23
Q

Q2. What is the individual compa-ratio for an employee whose salary is 25,000 per year when the midpoint of the salary structure is 30,000?
A. 0.17
B. 0.83
C. 1.20
D. 0.80

A

B. 0.83

24
Q

Q3. If you earn 50,000 per year and your co-worker in the same job earns 60,000, what percent
adjustment do you need to equal your co-worker?
A. 18%
B. 20%
C. 10%
D. 80%

A

B. 20%

25
Q

Q4. You have obtained a set of market data that show your senior MIS manager has a market average
of 72,000. If you have a 50% range spread, what would the new minimum and maximum be if the
new midpoint is 72,000?
A. 54,000; 90,000
B. 57,600; 86,400
C. 60,000; 84,000
D. They cannot be determined from the data given.

A

B. 57,600; 86,400

26
Q

Q5. An employee earning 50,000 annually contributes 8% of his/her salary to a voluntary savings plan in the first year of participation. Excluding investment earnings, how much is in this employee’s account at the end of the first year?
A. 2,000
B. 4,000
C. 5,500
D. 8,000

A

B. 4,000

27
Q

Q6. At 10% investment return, what would be in the same employee’s account including investment earnings at the end of the year?
A. 2,160
B. 4,400
C. 5,940
D. 8,640

A

B. 4,400

28
Q
  1. George and Kevin agree to job share. George will work two 10-hour days and Kevin will work three 7-hour days. What percent of the total weekly hours is George going to work?
    A. 39.5%
    B. 50%
    C. 48.8%
    D. 51.2%
A

C. 48.8%

29
Q
  1. You have 660 hourly, 420 salaried non-management and 320 salaried management employees.
    What is the percentage of salaried non-management employees?
    A. 23%
    B. 30%
    C. 45%
    D. 47%
A

B.

8 660 Hourly
420 Salaried nonexempt
320 Salaried exempt
1,400
420
1,400
= .30 or 30%

30
Q
  1. Twelve percent of your workforce of 9,500 lives in France. How many people in your workforce live
    in France?
    A. 962
    B. 1,000
    C. 1,140
    D. 1,212
A

C. 1,140

31
Q
  1. On January 1 of last year, you had 1,000 employees. During that year, your company lost money,
    and on December 31 there was a 20% reduction in the workforce. By July of this year, business
    again picked up, and you then increased your workforce by 20%. Do you now have 1,000
    employees again? If not, how many do you have?

A. Yes; 1,000 employees
B. No; 800 employees on Dec. 31, 960 in July
C. No; 800 employees on Dec. 31, 850 in July
D. Not enough information to compute

A

B. No; 800 employees on Dec. 31, 960 in July

32
Q
  1. A survey shows the average market pay for senior accounting clerks is 1,570 per month.
    Your midpoint for senior accounting clerks is 1,670 and the average actual pay is 1,550. What is
    your compa-ratio for accounting clerks? What is your market index?
    A. .928 compa-ratio; .987 market index
    B. .928 compa-ratio; 1.064 market index
    C. .987 compa-ratio; 1.064 market index
    D. .987 compa-ratio; 1.013 market index
A

A,

33
Q
  1. An executive is hired into your firm at a base salary of 80,000 per year. He is guaranteed a 6,000
    salary increase after six months of employment. What percent increase will he receive after
    six months?
    A. 6.0%
    B. 6.5%
    C. 7.0%
    D. 7.5%
A

D. 7.5%

34
Q

Q6. What is the salary range spread of grade 007?

GRADE MINIMUM MIDPOINT MAXIMUM
007 4800 6000 7200

A

D

35
Q
  1. If the midpoint is 2,000 and the desired range spread is 50%, what are the minimum and the
    maximum values?
    A. 1,500 minimum; 2,500 maximum
    B. 1,600 minimum; 2,400 maximum
    C. 1,700 minimum; 2,300 maximum
    D. 1,750 minimum; 2,250 maximum
A

7B.

36
Q
  1. If the minimum is 2,000 and the desired range spread is 40%, what is the midpoint?
    A. 2,000
    B. 2,300
    C. 2,400
    D. 2,800
A

8c

Quantitative Principles in Compensation Management (4 decks)

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